[Market Recap] Cup of Joe: December Market Update

1.   2023 has generally been a good year for equities, but be mindful of index concentration

 
2.   Great time to be diversified

So though a prudently balanced portfolio has faced challenges in recent years, the current outlook for diversification looks promising.

 
 
3.   Takeaways from our Investment Committee

Joe Gallemore, CIMA®, Partner

[Market Recap] Cup of Joe: November Market Update

Recent Investment Focus webinar with the St James Investment Co.
We talked about how interest rates affect stocks, about the Magnificent 7 making the S&P 500 more concentrated than it’s ever been, and we talked about St James’ patient, time-tested approach to value investing and how owning great businesses helps clients in the long-term. Watch at your convenience at ArgentBridge.com.

Financial Planning Year-End Punch List – a few things you can do to help you work towards better outcomes

• Assess any changes – Make a list and bounce it off your advisor.
• Give your taxes a little thought – if you got/are getting a good bonus, made more than you thought, had some windfall income, let your advisor know.
• Review your budget for accuracy – Leads to better planning for the future
• Make sure your company retirement plans are fully funded!/li>
• Charitable giving – If you want to gift, to charity or loved ones, tell your advisor! There’s lots of giving strategies out there and we want to help you make the most of your generosity.
• Year-end not necessarily a time to shuffle your investments. Historically the months in Q4 and Q1 are relatively strong. Make that discussion a year-round one with Argent Bridge.
• I-Bonds – Is it worth owning?
• I-bonds purchased in the last few years may be less competitive than current US Treasuries that can be locked in.
  Each I-bond is different and the time it was purchased and the length it’s been held needs to be considered.
  If you have I-bonds, show them to your advisor, let us take a look and see if there’s a way we can improve your outcome.
• Focus on your spending- Maintaining your normal spending plan, when funded by distributions from your investments, eats up bigger chunks of your assets when the markets decline.  So adjusting your spending is a great way to improve your investing outcome.Thank you for your continued trust and partnership. 

  
  Joe Gallemore, CIMA®, Partner

[Market Recap] Cup of Joe: October Market Update

Equity markets finished the 3rd quarter on a two month skid. Rising oil prices and interest rates were the main culprits for this.

Looking back, this feels like a market that got out over its skis up through July and spent the last two months back pedaling to more reasonable expectations. The stock market is focused on how long interest rates may remain high and when the tightening effects of that will start to alleviate. Things like mortgage rates declining and what the squeeze on corporate profits.

What do market statistics mean to you?

• Timely perspective and why it should matter to you:
  Today’s S&P 500 level takes us back to 5/3/2021.  The trailing return for the 2.33 years since then is flat, excluding dividends.And in fact, the index is still down approximately 11% from its peak in January of 2022.  Still not back to where we were pre-pandemic and pre-rate hikes. When you hear these sound bits on TV you should think, “Does this apply to me?”
• Index concentration: The top 5 names of the S&P 500 amount to a whopping 24% of the index; the top 10 names account for 31%!.  At one point this year, the top 7 stocks were responsible for around 80% of the Index’s return.
• Unless you owned only those 5-10 stocks, then you’re not going to experience this. Unless you owned only the index, you won’t experience this.  And never would we recommend you focus your portfolio in 10 stocks or even one single index fund.
• Last time interest rates were this high was in July 2007.  This is a market environment most people are not used to.
  Why is that important? Because the Fed’s actions have an enormous impact on how markets behave and, thus, your portfolio.  The Fed began raising interest rates last year and volatility was rampant.  But before this, a rate hiking cycle of this scale was so long ago that it seems people forgot what this feels like.
• Many economists are referring to today’s levels as “back to normal interest rates”. Hopefully this means that the Fed can make adjustments without causing massive price dislocations, which is what happens when rates sit at such an extreme (0%!) for such a long spell. The Fed has said they intend to keep rates higher for an extended period of time, so investors should reset their expectations and think of this as the proverbial New Normal, at least for a while.
• What a recession may mean for your portfolios.
  Volatility experienced in a recessionary market is typically good for actively managed strategies. It allows for what’s referred to as price discovery- where the market price of a stock is lower than what is implied by the fundamentals of the underlying company.  Active managers love to pounce on these opportunities.
• Typically, asset allocation has a more pronounced impact during and out of a recession.  For example, small & mid cap US stocks tend to do very well and often outpace large caps, coming off the bottom of economic cycles.  Growth, particularly Tech, stocks should have less of an oversized effect. Bonds historically have acted as a stabilize. Hopefully we see this as the Fed nears the end of the hiking cycle.  In the mean time, savings rates are providing a nice return to weather the storm, per se.
• Focus on your spending- Maintaining your normal spending plan, when funded by distributions from your investments, eats up bigger chunks of your assets when the markets decline.  So adjusting your spending is a great way to improve your investing outcome.Thank you for your continued trust and partnership. 

  
  Joe Gallemore, CIMA®, Partner

[Market Recap] Cup of Joe: September Market Update

Stock Markets cooled off in August

The August decline seems to be not such a bad thing. Not a good thing, per se, but good in the sense that it may be healthy for the market.  Staving off the proverbial irrational exuberance and keeping expectations in check.

• The S&P 500 was +20.6% through July 31st.  On pace for a calendar year return of +35.4%. That has happened only 5 times since the Great Depression, and the last time was in 1958. So a year like this would be exceptional.

In our opinion, one good thing about the market repricing in August is that it seemed to happen on its own, it was not caused by any surprise headlines or negative reports.

• The August cool-off also happened with a very average amount of volatility, average by historical standards.
• Except for a three-day period right in the middle, the daily moves were mostly in bite sized chunks, which is nice to see.  This is also good for the investing mentality, because it keeps the financial media quiet which prevents either our Fear or FOMO reactions from flashing red.
• A market moderating itself on its own isn’t always a bad thing because it keeps expectations in check and mitigates the amount of emotional frenzy we experience.

What this August performance could also be signaling is that the Fed is still in the driver’s seat. Market participants were seemingly watching the data roll out and gauging the potential signaling of if-you-give-a-mouse-a-cookie will it end up with the Fed hiking rates more or pausing for a while.

A big positive right now is:

• Job market has remained strong and the Unemployment rate has remained low.
  Employed workers fuels spending which fuels corporate profits.
  Corporate profits are the main driver of long term stock prices.

Thank you for your continued trust and partnership. 

Joe Gallemore, CIMA®, Partner

[Market Recap] Cup of Joe: August Market Update

Stock indexes posted strong gains in July. US Large cap and International stocks were up over 3% and US Small Cap and Emerging Market stocks were up more than 6% during the month. Primarily led by the Fed’s pause on interest rates in June, and the continued trickle of positive data on the economy. 

In the first half of the year, performance of the S&P 500, and arguably the market at large, had been dominated by large tech stocks.
Large Growth stocks have been on a white hot tear this year returning over 33% in the first 6 months.This started to turn over a bit in July.The S&P 500 Equally-Weighted Index returned slightly more than the traditional S&P 500 Index in July (3.5% vs 3.2%). This performance shift is a good thing for diversified portfolios because it means that a broader range of stocks performed well, as opposed to a small few.  
 
The “so what” of all this. How does this apply to me?
Not focused on growth or large growth. This, like everything else, goes through cycles. It has been in favor in recent history because of suppressed interest rates. Large Growth was -30%+ in 2022… because interest rates went up, fast.
 
Diversification:
A portfolio of 60% SP 500 & 40% Barclays US Aggregate Bond indexes is +13% year to date. According to JPM, a broadly diversified allocation of about 8 different asset classes is +10.7% YTD as of 7/31.The goal of diversification is not keeping up with a specific equity index.If you’re retired or in the later innings of your career, you’re going to have exposure to bonds, for income and risk control. Bonds are up barley 2% this year because they’ve been going through a rate hiking cycle and inflation (a bond’s worst enemy) was generationally high last year.
 
So,Knowing you have a diversified portfolio…
When you hear, “The NASDAQ is up for 13 straight days!” know they’re not talking about you.  When you hear, “Equities are favored to bonds!”, just think to yourself “well I use bond to control risk in my portfolio, and they’re now paying me more than they have in 20 years.” And when you hear talking heads explaining why pockets of the market are ripe for bursts of performance, just remember that market timing has been all but proven impossible, and pursuing it is a fools errand.
 
Thank you for your continued trust and partnership.